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The new trade order: fragmentation over globalization
This study analyzes the welfare effects, measured by real GDP, in a trade war scenario between economic blocs. Using 2019 data, we extend a Ricardian model through a sufficient statistics approach to estimate optimal Nash tariffs under two scenarios: unilateral country policies versus coordinated bloc policies. The results show that regional cooperation significantly mitigates income losses, highlighting the costs of protectionism. Moreover, countries and blocs with a higher share of manufacturing exports experience smaller welfare losses, and tariff levels are determined in relation to the internal heterogeneity of the bloc.
(2025-06-06)